Running head: UBER CASE STUDY 1

Uber Case Study

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Uber Case Study

The purpose of this paper is mainly to analyze and assess how Uber has managed to

exploit the cab-hailing market. The paper will fully expound on the various strategies

employed by the organization in a bid to meet the much-needed demand that was created

within the mentioned market. The paper will also contain a description of how uber managed

to exploit various inefficiencies that were unaddressed within the taxi service industry for

many years prior to its formation. Further, the paper will analyze the company’s pricing

strategies in the context of economic factors including supply and demand and price

discrimination. Other economic factors to be analyzed will include economies of scale, game

theory, and the company’s international expansion and trade policies. Other issues addressed

will be the incentive pay model and asymmetric information issues with the company’s

business model.

1. The Market Before Uber, What Inefficiencies Were Exploited By Uber

Uber Technologies Inc. is a company that was founded in 2009 to meet the needs of many

individuals who felt like they needed a more personalized and convenient type of cab-hailing

service (Geissinger, Laurell, & Sandström, 2020). The convenience and personalization were

based on the model that the customer would request for the cab from the expediency of their

home or location and would only be on the move when the cab had reached their location.

This was a big advantage to the customers mainly because at times it would get hectic for the

customers to get a cab especially if the weather was not favoring. This was one of the major

inefficiencies that were exploited by Uber (Geissinger, Laurell, & Sandström, 2020). The

success of the organization was also fueled by the fact that there was an increase in

smartphone usage and acquisition which was a requirement for the consumers and drivers

alike. Cab fares were also on the higher side before Uber joining the industry (Geissinger,
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Laurell, & Sandström, 2020). Uber as an organization has capitalized on the aspect of

economies of scale to ensure that a win-win situation is created for all parties involved: that is

the customer, the driver, and the shareholders of the organization. This is achieved by

lowering the fares for the customers and ensuring that the drivers easily get more customers

so that they are not discouraged by the small profit margins.

2. Uber’s Surge Pricing in the Context of Shifts in Supply And Demand.

In areas where there is an imbalance of the ratio of drivers to riders, certain set parameters

react to find a balance by either lowering or increasing the fares. When there are significantly

more riders than drivers in a particular area the prices tend to go up and when the drivers are

more than the riders it means that there is low demand and the prices are reduced. This

process tends to find a balance or otherwise known as an equilibrium where demand is

satisfied by supply (Geissinger, Laurell, & Sandström, 2020). A surge also encourages more

drivers to head to the busier areas and serve the excess riders to kind of help the situation and

reinstate balance. The drivers also get to enjoy the incentive offered to them as they get to

earn more for these types of trips. For the riders on the other hand, this operates as a premium

for them. This means that those who are willing to pay the higher rates will have the

opportunity to go first while the rest who are willing to wait for the prices to drop will have to

wait for the balance to be restored. This system works flawlessly most of the time as a result

of properly set and calculated algorithms that are programmed to solely deal with these types

of situations. Real-time updates are also useful when it comes to the programming of surges

and determining if the price will be increased or decreased (Cook & O’Rourke 2019). This is

also a very important aspect of the feature since everything is based on immediate and

instantaneous updates. This has proven to be a vital feature with regards to balance and

control of the heavily trafficked regions.

3. Uber’s Surge Pricing in the Context of Price Discrimination.

When it comes to price discrimination strategy, Uber has developed one of the most

successful strategies that make the consumer have options when it comes to service delivery.

The trick to this is that the organization is available to generate more streams of revenue from

very minor tweaks to the consumers that are willing to pay extra (Garud, Kumaraswamy,

Roberts, & Xu, 2020). In hindsight, the consumer is enticed by simple or reinvented options

that bear a hefty price tag and this encourages those who can pay while the rest who feel like

the option is too extravagant will only opt for the normal services without any extra costs

(Garud, Kumaraswamy, Roberts, & Xu, 2020). Uber’s discrimination strategy varies from

one location to the other and this is normally arrived at after a feasibility test and an

opportunistic business survey to see what lines of service will be most suitable for each

market. This is mainly determined by factors such as the spending habits of the population

and other factors. Some regions are faced with up to about five or more lines of service

search as Uber X which serves at the lower end to Uber LUX which is considered to be the

priciest of the services. The variances are not only pricey because they offer luxury but they

are also created to provide various levels of convenience to the customers. A good example

of the services includes Uber plus which caters to customers who wish to travel in larger

groups that cannot fit in a small family size vehicle (Garud, Kumaraswamy, Roberts, & Xu,

2020). Uber Black which grants the riders with the best-rated drivers, the organization

markets this service as being the best for business meetings or even a special night out. Uber

SUV is another service that serves customers who would generally require a car with more

clearance. Last but not least is the Uber LUX option which boasts as the most luxurious

service with costs being as high as five times the normal rates (Jordan, 2017).
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4. The Concepts of Economies of Scale and Economies of Scope to Uber’s Business

Model.

Economies of scale can be described as the advantage in cost that an organization enjoys

as a result of an upsurge in the output of goods or services. Throughout the years, Uber has

remained successful as it enjoyed a larger market share as a result of compromising on bigger

profit margins for a larger clientele base that will keep the drivers busy and make them earn a

lot more (Garud, Kumaraswamy, Roberts, & Xu, 2020). By making their trips cheaper than

other cab-hailing service providers they invite more customers to their platform and this

makes their service more profitable because of increased traffic. This in itself is a practice of

economies of scale because the term suggests that for it to be practiced there needs to be an

increase in the output of the available services but at an attainable price point for most of the

targeted customers (Garud, Kumaraswamy, Roberts, & Xu, 2020). The act of coming up with

offers for the customers whereby they can also save a certain amount of money for the sake

of retaining them as esteemed customers is also a feature of economies of scale. Economies

of scope, on the other hand, refer to the practice of increasing efficiency by adding more

variety as opposed to only increasing the volume (Morikawa, et al 2017). The organization

has worked on this point since its inception as the management has always looked for

opportunities through which the organization can increase its market share and overall

profits. As discussed in the previous point, the organization has always ensured that it comes

up with more convenient services that will satisfy customer wants and needs. This is a

cheaper way for the organization to attract more clients with varying needs and ascertain that

a wide range of customers can benefit and remain loyal to the organization and its services.

Uber has worked relentlessly to ensure that both these aspects of the business are

simultaneously worked on to increase revenue streams and keep the organization competitive

among its competitors.

5. The Concepts Of Game Theory To Uber’s Market

Game theory is the assessment of mathematical models to deal with competition to ensure

that the best options that bring out an advantage are considered. In Uber’s case, the strategy

was mainly on how to deal with conventional taxis. Uber had to strategize on three main

things which were: pricing, convenience, and improved customer interaction (Geissinger,

Laurell, & Sandström, 2020). When it came to pricing Uber had to employ economies of

scale and economies of scope to ensure that the organization enjoyed reduced but consistent

margins. Pricing was a very important factor mainly because the conventional taxis were

highly-priced and this was a sign for opportunity by the management at Uber (Geissinger,

Laurell, & Sandström, 2020). Customers who were using the conventional taxis only did so

because there were no other available options and all that was needed was for Uber to seize

the opportunity. This move made many conventional taxi drivers to eventually join Uber

mainly because of the way the organization had packaged its product and presented it to the

customers. Convenience was another strategy that symbolized game theory in the structure of

the organization. Anyone who has ever used the conventional taxi is aware of how

inconvenient the process can be. Firstly, at peak hours it is difficult to hail a cab because the

meeting mostly happened by chance unless the rider was aware of where the taxis stall for

riders (Geissinger, Laurell, & Sandström, 2020). This would always be hectic especially on

days when there was bad weather. The convenience of Uber was that the rider does not have

to be outdoors to hail a cab. Cab hailing can now be done from the comfort of homes, offices,

or even restaurants or whatever location the rider is at. It is also made easier for the rider to

know how far the driver is and how long it might take him to reach where the rider is. It is

this type of convenience that gave Uber an upper hand when it came to competing with the

conventional taxis (Garud, Kumaraswamy, Roberts, & Xu, 2020). Unlike many other cab-
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hailing services and conventional taxis, Uber prides itself on one of the best customer

interaction platforms where customers can lodge their complaints or even suggestion. This

was a very foreign aspect for the cab-hailing industry especially for the conventional taxis

whereby people would lose a lot of their valuables and have no way of getting the items back

due to lack of customer and organization interaction. Today it is very difficult for an

individual to lose an item in an Uber mainly because of how easy it is to trace the driver for

questioning.

6. Uber’s Potential For International Expansion And Potential Trade Policy Issues

Uber has great potential for international expansion. This can be supported by the fact

that its business plan is well aligned with any economic setting of any city in the world

(Geissinger, Laurell, & Sandström, 2020). This means that Uber can work anywhere in the

world as long as there is a market for cab-hailing and that essentially means any city in the

world. The trickiest part with the expansion of Uber is the fact that enough market studying

has to be done so that the management is well aware of that particular market and what

exactly is required for the services to thrive within that particular region (Geissinger, Laurell,

& Sandström, 2020). There is great potential in this field as long as the services provided are

standardized and this can only be achieved by ensuring that the drivers and other staff are

well trained regularly with retraining programs made available to ensure that their memories

are always refreshed. Markets may differ with one aspect or the other but the proper

assessment will always make it easy for the organization to conquer newer markets. It may be

difficult for a multinational organization such as Uber to join new markets mainly because of

the various issues in trade policies (Geissinger, Laurell, & Sandström, 2020). This might be

the reason as to why it is easier for the organization to tap into some markets and to fail in
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others. Uber’s international expansion plan is highly dependent on the political state of the

regions and areas that the organization wishes to expand in to. A good political environment

that encourages investment is good for any multinational organization to set up and start its

growth but a bad political state is bad for the setting of a multinational organization since its

growth will be highly affected by the failing economic situation (Geissinger, Laurell, &

Sandström, 2020). A good understanding of the trade policies is also important before the

organization sets up mainly because it is these policies that will enable the organization to

either grow or succumb to failure.

7. The Incentive Pay Model Uber Uses And How It Affects The Principal-Agent

Problem

Since the human workforce is one of the most important aspects of any business or

organization Uber has been quick to ensure that its workforce is happy. The drivers are the

most important part of the workforce in this organization since they are the ones that are

constantly in contact with the customers so making them happy ultimately makes the

customers happy (Geissinger, Laurell, & Sandström, 2020). If the drivers are motivated, they

will be more productive and relay their joy to the customers who will always look forward to

their next trip with the organization. One of the most common incentives that have been

awarded to the drivers is that the drivers have been granted a chance to increase their earnings

every week. This will happen only if the drivers complete a total of 20 trips in a week.

Thereafter each other trip’s service fee will be abridged to three percent instead of the normal

rates (Geissinger, Laurell, & Sandström, 2020). This means that the drivers who work harder

will be in a position to earn a lot more within the week. Such incentives motivate the drivers

and ensure that they work a little harder than they would if they were not offered the
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incentives. The principal-agent problem is the state whereby the priorities of an organization

are not aligned to those of the go-between that has been assigned to work on their behalf.

Such a scenario is likely to come up in cases where the drivers are not happy with the way

they feel that the organization is treating them (Jordan, 2017). This situation can cause the

drivers to start to act in a rogue manner which eventually harms the business. On the

contrary, if the drivers are happy, they will take care of the customers in a more suitable way

and assume all responsibility that has been awarded to them.

8. Asymmetric Information Issues With Uber’s Business Model

Although Uber has constantly shown signs of growth and expansion throughout the world

since its inception, it also worth noting that it is faced by several asymmetries that have to be

mentioned (Geissinger, Laurell, & Sandström, 2020). One of the asymmetries is the fact that

it is highly dependent on drivers. This is a good thing only if the drivers are focused and

assume their granted responsibilities as they should. If the case is not so, the organization can

be under a lot of risks especially if the drivers want to sabotage the organization for whatever

malicious reason (Geissinger, Laurell, & Sandström, 2020). This type of high dependency on

one part of the organization’s departments means that their vulnerability is the whole

organization’s vulnerability. Because Uber is a multinational organization, its growth and

expansion are mainly limited to the countries and states that have trade policies that can be

aligned to the business model. This means that the organization is not likely to function in a

country that does not support its business model mainly because it will not be a profitable

business in that kind of state (Geissinger, Laurell, & Sandström, 2020). This fact ideally

means that the organization cannot expand to the limits that the shareholders may desire
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mainly because of unfavorable operating conditions in some parts of the world. Last but not

least, Uber was a pioneer in its field and it has enjoyed its run at the top of the helm. The

company has been facing a lot of competition from other organizations that tend to offer the

same services. This means that to maintain the larger portion of the market share the

organization has to be in a position whereby it is constantly improving its services and

products. If this does not happen then the organization will be at risk of losing its market

share and eventually lose profits (Garud, Kumaraswamy, Roberts, & Xu, 2020).

References

Cook, J., Patel, R., & O’Rourke IV, J. S. (2019). Uber technologies, Inc.: Accountability in

corporate culture. Journal of Organizational Behavior, 11, 33-50.

Garud, R., Kumaraswamy, A., Roberts, A., & Xu, L. (2020). Liminal movement by digital

platform‐based sharing economy ventures: The case of Uber Technologies. Strategic

Management Journal.
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Geissinger, A., Laurell, C., & Sandström, C. (2020). Digital Disruption beyond Uber and

Airbnb—tracking the long tail of the sharing economy. Technological Forecasting

and Social Change, 155, 119323.

Jordan, J. M. (2017). Challenges to large-scale digital organization: the case of Uber. Journal

of Organization Design, 6(1), 11.

Morikawa, M., Marin, D., Rousová, L. F., & Verdier, T. Corporate culture as a theory of the

firm: The role of values, customs, and norms.

Paronda, A. G. A., Regidor, J. R. F., & Gaabucayan-Napalang, S. (2017). An Exploratory

Study on Uber, GrabCar, and Conventional Taxis in Metro Manila. University of the

Philippines.